[No. 46.]

AN ACT to prevent fraud in the sale and disposition of stocks, bonds or other securities sold or offered for sale within the State of Michigan by any dealer, firm, company, association or corporation, foreign or domestic, by requir ing an inspection of such stocks, bonds, or other securities and an inspection of the business of such persons, firms, companies, associations or corporations, including dealers and agents, and such regulation and supervision of the business of said persons, firms, companies, associations, or corporations, including dealers and agents, as may be necessary to prevent fraud in the sale within the State, of any stocks, bonds or other securities, and to provide a penalty for the violation thereof, and to repeal act number one hundred forty-three of the Public Acts of nineteen hundred thirteen, approved May two, nineteen hundred thirteen, and all other acts or parts of acts inconsistent herewith.

The People of the State of Michigan enact:

commission.

of present

papers, etc.

SECTION 1. There is hereby created a commission to be known Securities as The Michigan Securities Commission and hereafter called in this act "the commission," whose duty it shall be to administer and provide for the enforcement of all the provisions of this act. Said commission shall consist of the Commis- Personnel. sioner of the State Banking Department who shall be president thereof; the State Treasurer of the State and the Attorney General of the State, all of whom shall be members of said commission during their respective terms of office and any two of whom shall constitute a quorum. The said com- Successor mission shall succeed the Michigan Securities Commission commission. created by act one hundred forty-three of the Public Acts of nineteen hundred thirteen, and as such successors shall re- Files. ceive all of the files, papers and property of said Michigan Securities Commission created by said act one hundred fortythree of the Public Acts of nineteen hundred thirteen. All Proceedings proceedings pending before said Michigan Securities Commis- saved. sion created by said act one hundred forty-three of the Public Acts of nineteen hundred thirteen shall be continued by the commission created by this act; all actions, civil and criminal, pending under said act one hundred forty-three of the Public Acts of nineteen hundred thirteen shall be continued and completed thereunder. Said commission shall office in have its office in the capitol in the city of Lansing, in rooms to be provided by the Board of State Auditors, and all of its records shall be there kept. It shall hold a regular meet- Meetings. ing on the first Friday of each month and may hold special meetings upon the call of the president. It shall keep a com- Record. plete record of all its meetings, its accounts and the business

capitol.

Secretary and it transacts. It shall appoint a secretary whose salary shall employes. not exceed the sum of twenty-five hundred dollars per annum and shall have power to employ such other and further assistance as may be necessary to carry out the provisions of this act. All salaries fixed by it shall be subject to the approval of the Board of State Auditors. It shall make such rules and regulations as may be necessary to carry out the provisions of this act and may prepare all necessary blanks to be used in its proceedings and in the conduct of its busi

Salaries.

Rules and regulations.

Domestic investment companies.

Foreign investment companies.

Act not to apply.

Proviso, suspension of sale of securities.

ness.

SEC. 2. Every person, corporation, co-partnership, company, or association (except those exempt under the provisions of this act) organized, or which shall hereafter be organized in this State, whether incorporated or unincorporated, which shall either himself, themselves or itself, or by or through others, sell or negotiate for the sale of any stocks, bonds or other securities issued by him, them or it within the State of Michigan, shall be known for the purposes of this act as a domestic investment company. Every such person, corporation, co-partnership or association resident of or or ganized in any other state, territory or government, shall be known for the purposes of this act as a foreign investment company.

SEC. 3. The provisions of this act shall not apply to (a) securities of the United States, or any foreign government, or of any state or territory thereof, or of any county, city, township, district or other public taxing subdivision of any state or territory of the United States, or any foreign government; (b) unsecured commercial paper; (c) securities of public or quasi public corporations, the issue of which securities are regulated by the Michigan Railroad Commission or by a public service commission or board of equal authority of any state or territory of the United States or securities senior thereto; (d) securities of State or National banks or trust companies, or building and loan associations of this State; (e) securities of any domestic corporation organized without capital stock and not for pecuniary gain, or exclusively for educational, benevolent, charitable or reformatory purposes; (f) mortgages upon real and personal property situated within this State where the entire mortgage is sold and transferred with the note or notes secured by such mortgages; (g) increase of stock sold and issued to stockholders, also stock dividends; (h) securities which are listed in any standard manual of information approved by said commission: Provided, however, That said commission shall have the power to call for additional and further information than that contained in such manuals with reference to any securities listed therein, and may, pending the filing of such information, suspend the sale of such securities, and also suspend, either temporarily or permanently, the sale of any securities listed in such manuals after a hearing

upon notice to the issuer of such securities if said commission shall find that the sale of such securities would work a fraud upon the purchasers thereof; (i) all stocks, bonds and securities approved by the Michigan Securities Commission created by act one hundred forty-three of the Public Acts of nineteen hundred thirteen.

of sale of

statement.

ship, etc.

SEC. 4. Before selling, offering for sale, taking subscrip- Conditions tions for, or negotiating for the sale in any manner whatever stock, etc. in this State, any stocks, bonds or other securities of its own issue, every investment company, domestic or foreign, shall file in the office of the commission a statement showing in full detail the plan upon which it proposes to transact busi- Statement ness; a copy of all contracts, stocks, bonds or other instru- to be filed. ments which it proposes to make with, or sell to, its contributors or customers, together with a copy of its prospectus, and of the proposed advertisements of its sale of stocks, bonds, or other securities, which statement shall also Contents of show the name and location and main office of the investment company; the names and addresses of its officers, and an itemized account of its financial condition and the amount of its assets and liabilities, and such other information touching its conditions and affairs as the commission may require. If such investment company shall be a co- Articles of partnership or an unincorporated association it shall also co-partnerfile with the commission a copy of its articles of co-partnership or association, and all other papers pertaining to its organization. If it be a corporation organized under the laws Articles of of Michigan it shall also file with the commission a copy of incorporation, its articles of incorporation, constitution and by-laws, and all other papers pertaining to its organization. If it shall be an investment company organized under the laws of any other state, territory or government, incorporated or unin- Charter and corporated, it shall also file with the commission a copy of the laws of the state, territory or government under which it exists or is incorporated, and also a copy of its charter and the certificate of the proper officer of such state showing that it is authorized to transact business there; and also copies of its constitution and by-laws, and all amendments of any of the above mentioned instruments which have been made, and all other papers pertaining to its organization. It Filing fee. shall also pay a filing fee of one-tenth of one per cent upon the face value of the securities for the sale of which application is made: Provided, however, That such filing fee shall Proviso, not be more than one hundred dollars, nor less than ten dollars.

etc.

certificate.

limit.

verified.

SEC. 5. All of the above described papers shall be veri- How papers fied by the oath of a member of the co-partnership or company, if it be a co-partnership or company, and by the oath of a duly authorized officer, if it be a corporation or an unincorporated association. All such papers, however, as are Certified recorded or are on file in any public office shall be further

copies.

Consent to suits.

Resolution of directors, etc.

Duplicate

process or pleadings.

Hearing on application.

certified by the officer of whose records or archives they form a part, as being correct copies of such records or archives.

SEC. 6. Every foreign investment company before offering for sale any of its stocks, bonds or other securities in this State shall also file its irrevocable written consent that suits and actions may be commenced against it in the proper court of any county in this State in which a cause of action may arise or in which the plaintiff may reside, by the service of any process or pleadings authorized by the laws of this State, on the Commissioner of the State Banking Department, said consent stipulating and agreeing that such service of such process or pleadings on such commissioner shall be taken and held in all courts to be as valid and binding as if due service had been made upon the company itself, and said instrument containing such consent shall be authenticated by the seal of said foreign investment company, and by the acknowledged signature of a member of the co-partnership or company, if it be a co-partnership or company, or by the acknowledged signature of the president and secretary of the incorporated or unincorporated association, if it be an incorporated or unincorporated association, and shall in such case be accompanied by a duly certified copy of the resolution of the board of directors, trustees or managers of the corporation or association, authorizing the secretary and president to execute the same. In case any process or pleadings mentioned in this act are served upon the Commissioner of the State Banking Department, it shall be by duplicate copies, one of which shall be filed in the office of the Michigan Securities Commission and another immediately forwarded by registered mail to the head office of the person or corporation against which said process or pleadings are directed.

SEC. 7. Said application shall be heard by the said commission at the next regular meeting after said application is filed (providing such filing shall precede such monthly meeting by twenty-four hours), or at a special or adjourned meeting of said commission, but if such application is heard at a special or adjourned meeting of said commission the secretary shall give such applicant at least two days' notice of such hearing. Said commission may have power to adAdjournment. journ such hearings upon such applications from day to day or from time to time.

Notice.

Further information may be demanded.

Detailed examination.

SEC. 8. The said commission shall have power to demand from any investment company seeking to come under the provisions of this act any further information other than such investment company is required to furnish under the provisions of this act which shall be necessary to the end that the commission may be put in possession of all facts and information necessary to qualify it to properly pass upon all questions that may come before it. It may make or have

property.

made under its direction a detailed examination of such investment company's property, business and affairs, which examination shall be at the expense of such investment company. It may cause an appraisal to be made, at the expense Appraisal of of said investment company, of the property of said investment company, including the value of patents, good will, promotion and intangible assets, and it may fix the amount of stocks, bonds and securities that shall be issued by any corporation, foreign or domestic, in payment for property, patents, good will, promotion and intangible assets at the value it shall find the same to be worth and may require that such stocks and securities so issued for such property, patents, good will, promotion and intangible assets shall be deposited in escrow under such terms as said commission may prescribe. And said commission may withhold its Withholding license to sell such stocks, bonds and securities if such corporation has issued stocks, bonds and securities in payment for property, patents, good will, promotion and intangible assets in excess of their value as found by said commission or if said stocks, bonds and securities are not deposited in escrow according to the terms fixed by such commission until such stocks, bonds and securities issued in payment for property, patents, good will, promotion and intangible assets in excess of the value so found by said commission have been surrendered to such corporation and cancelled by it, and until the said stock has been deposited in escrow under the terms prescribed by said commission.

license to sell.

etc., filed.

SEC. 9. It shall be the duty of said commission to examine Examination the statements and documents filed in its office by any invest- of statements, ment company and the reports of any investigation conducted under the direction of said commission and to hear such applicant and it shall have power to examine under oath any person interested or connected with such investment company, and if said commission finds that the proposed plan of business of said investment company, or that its proposed contracts, stocks, bonds or other securities are fraudulent or are of such a nature that the sale of such contracts, stocks, bonds or other securities would in the opinion of said commission work a fraud upon the purchaser, then said commission shall disapprove the sale of such proposed contracts, stocks, bonds or other securities and shall notify Disapproval such investment company by registered mail of its findings Notice. and disapproval, and it shall be unlawful for such company to do any business in the way of selling, offering for sale, Sales taking subscriptions for, or negotiating for the sale in any unlawful. manner whatever of any such contracts, stocks, bonds and other securities in this State; and said contracts, stocks, bonds and other securities shall not be sold in this State. If, Approval however, said commission shall not find that the proposed plan of business of said investment company or that its proposed contracts, stocks, bonds or other securities are fraud

of sale.

of sale.